PORTFOLIOS, ETC.

PORTFOLIOS, ETC.; A Biotechnology Stock Shakes Off Trauma

By ALEX BERENSON

Published: March 12, 2000

IF only the human body could handle trauma as well as biotechnology stocks do.

In case you haven't noticed, the Nasdaq Biotech Index has more than doubled since October, and many genomics companies, which try to unravel the secrets of the human genetic code, are up much more.

But skeptics, including some longtime biotechnology investors, say the sector's boom has as much to do with the search by day traders for short-term profits as with the realities of the difficult and time-consuming business of discovering drugs.

And biotechnology is not the Internet, they warn. Would-be drug companies must either produce medicines that stand up to federal scrutiny, demonstrate that their data has value to other companies or go out of business.

To the skeptics, nowhere is the disconnect between reality and investor hope clearer than in the case of third-tier biotechnology companies, those that have been swept up in the recent rally despite having had some bad news in the recent past.

Consider Isis Pharmaceuticals, of Carlsbad, Calif.

Isis has had a couple of bad months. In December, the company ended plans to seek approval of its lead drug, ISIS 2302, for treatment of Crohn's disease, a serious intestinal inflammation. In January, Isis said it would lay off 40 percent of its employees to save cash and to ''focus resources.''

In February, Isis announced a loss of $60 million for 1999, compared with a loss of $43 million in 1998. Revenue was $34 million, down from $39 million.

So you might expect that the company's stock would be trading lower now than it was, say, in November. You would be wrong. After losing almost two-thirds of its value on Dec. 14, when the company disclosed the failure of ISIS 2302, and falling below $5 in late December, Isis has been reborn this year. Its stock, which peaked at $33.8125 on March 6, closed at $24 on Friday.

At that price, Isis has a market value of more than $800 million. Not bad for a company that has lost hundreds of millions of dollars over the last decade and whose drugs, which are based on a radical theoretical approach to treatment that goes by the unfortunate name of antisense, have failed repeatedly to make the jump from test tube to human body.

''The ultimate goal for all these companies is not just to have proof of principle, but to have a product to sell,'' she said. ''This was as bad as it gets.'' Oracle has no long or short position in Isis, Dr. Mazanet said.

To be sure, Isis has its defenders. Sushant Kumar, an analyst at Mehta Partners, a research firm, said Isis shares had gained because investors realized that the company's antisense research and patents would have value for genomics companies. Antisense focuses on creating drugs that affect RNA, the crucial intermediary that helps turn the genetic data in DNA into functioning proteins in cells. The company's expertise in RNA will let it help companies that have built libraries of genetic information understand how those genes work in the human body, Mr. Kumar said.

''Over the year, we developed powerful solutions to genomics questions, at the same time we were creating our antisense drug pipeline,'' said Dr. Stanley Crooke, the chief executive of Isis.

Dr. Mazanet agreed that Isis, like almost every biotechnology company, has accumulated genetic data in its quest to find new drugs. But that doesn't make it a genomics company.

''Every company out there that has a DNA sequencer has some ability to look at these genes,'' she said. ''But having one piece of a thousand-piece puzzle is not as valuable as if you have 100 pieces, 200 pieces.''

Correction: March 19, 2000, Sunday The Portfolios, Etc., column last Sunday, about the stock market performance of Isis Pharmaceuticals, a biotechnology company, referred incompletely to its history of drug development. It has indeed developed a drug that qualified for use on the human body: Vitravene was approved by the Food and Drug Administration for treatment of cytomegalovirus retinitis, an eye disease.